DCIT, CHENNAI V. Ambadi Enterprises Ltd., CHENNAI

ITA 1314/CHNY/2013

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 4619 (ITAT-CHENNAI)
• Duration Of Justice: 3 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-09-2013
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 11-09-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 10-06-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S DASGUPTA
• Assessee Lawyers: M KARUNAKARAN
• Keywords: Earning of tax free income
• Section: 143(3); 14A

Judgement Text

IN THE INCOME-TAX APPELLATE TRIBUNAL D BENCH, CHENNAI. BEFORE DR.O.K. NARAYANAN, VICE-PRESIDENT & SHRI V. DURGA RAO, JUDICIAL MEMBER ITA NO. 1314/MDS/2013 ASSESSMENT YEAR: 2007-08 THE DEPUTY COMMISSIONER OF INCOME TAX, COMPANY CIRCLE I(1), CHENNAI 34. VS. M/S. AMBADI ENTERPRISES LTD., PARRY HOUSE, 5 TH FLOOR, NO. 46, MOORE STREET, CHENNAI 1. [PAN : AAACA6374J] (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI S. DAS GUPTA, JCIT RESPONDENT BY : SHRI M. KARUNAKARAN, ADVOCATE DATE OF HEARING : 11.09.2013 DATE OF PRONOUNCEMENT : 11.09.2013 O R D E R PER V. DURGA RAO, JUDICIAL MEMBER : THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINS T THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) VI, CHENNA I DATED 08.01.2013 RELEVANT TO THE ASSESSMENT 2007-08. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE I S A COMPANY CARRYING ON BUSINESS IN FABRICS, FLOOR COVERINGS ET C. FOR EXPORT. THE ASSESSEE FILED RETURN DECLARING INCOME OF ` .1,41,76,629/-. INITIALLY, THE RETURN WAS PROCESSED UNDER SECTION 143(1) OF THE IN COME TAX ACT AND I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.1 11 13 33 31 11 14 44 4/M/ /M/ /M/ /M/13 1313 13 2 SUBSEQUENTLY, ASSESSMENT WAS COMPLETED UNDER SECTIO N 143(3) OF THE ACT. THE ASSESSING OFFICER HAS INVOKED THE PROVISIO NS OF RULE 8D OF THE INCOME TAX RULES AND ALLOCATED INTEREST OF ` .20,59,893/- TO EARNING OF DIVIDEND INCOME OUT OF THE INTEREST PAYMENTS O ` . 70,13,066/-. AS REGARDS ADMINISTRATIVE EXPENSES, THE ASSESSING OFFI CER HAS DISALLOWED % OF THE AVERAGE VALUE OF INVESTMENTS AMOUNTING TO ` .4,10,918/-. IN ALL, THE ASSESSING OFFICER HAS DISALLOWED A SUM OF ` .24,70,811/- AS EXPENSES ATTRIBUTABLE TO EARNING OF DIVIDEND INCOME UNDER SECTION 14A OF THE ACT. 3. ON BEING AGGRIEVED, THE ASSESSEE CARRIED THE MA TTER IN APPEAL BEFORE THE LD. CIT(APPEALS). 4. IT WAS SUBMITTED BEFORE THE LD. CIT(APPEALS) TH AT ALL THE INVESTMENTS ARE FROM OLD AND THE SURPLUS AND RESERVES AND NO BO RROWED FUNDS WERE UTILIZED FOR THE INVESTMENTS. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE LD. CIT(APPEALS) HAS ALLOWED THE APPE AL OF THE ASSESSEE. 5. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 6. THE LD. DR HAS SUBMITTED THAT THE ADMINISTRATIV E EXPENSES DISALLOWED BY THE ASSESSING OFFICER WAS % OF AVERAGE VALUE OF INVESTMENTS AMOUNTING TO ` .4,10,918/-. HE HAS FURTHER SUBMITTED THAT THE DISA LLOWANCE MADE BY THE ASSESSING OFFICER UNDER SECTION 14A FAI R AND REASONABLE. I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.1 11 13 33 31 11 14 44 4/M/ /M/ /M/ /M/13 1313 13 3 7. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSE SSEE SUPPORTED THE ORDER PASSED BY THE LD. CIT(APPEALS). 8. WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIALS ON RECORD AND ORDERS OF AUTHORITIES BELOW. SO FAR AS ADMINISTRATI VE EXPENSES ARE CONCERNED, THE ASSESSING OFFICER HAS DISALLOWED ONL Y % OF THE AVERAGE VALUE OF INVESTMENTS AMOUNTING TO ` .4,10,918/- AND THE LD. CIT(APPEALS), WITHOUT GIVING ANY REASON SIMPLY ALLOWED THE CLAIM OF THE ASSESSEE. THE ASSESSEE WOULD HAVE INCURRED SOME EXPENSES FOR THE PURPOSE OF EARNING EXEMPT INCOME, WHICH CANNOT BE ALLOWED AGAINST THE TAXABLE PROFITS. HENCE, % OF AVERAGE VALUE OF INVESTMENTS DISALLOWED TOWAR DS EARNING EXEMPT INCOME BY THE ASSESSING OFFICER IS FOUND TO BE REAS ONABLE. THEREFORE, WE SUSTAIN THE ORDER OF THE ASSESSING OFFICER BY REVER SING THE ORDER OF THE LD. CIT(APPEALS) ON THIS ISSUE. ACCORDINGLY, THIS GROUN D OF APPEAL OF THE REVENUE IS ALLOWED. 9. SO FAR AS INTEREST OF ` .20,59,893/- IS CONCERNED, IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER HAS OBSERVED THAT THE ASSESSEE HAS INCURRED AN AMOUNT OF ` .70,13,066/- AS INTEREST DURING THE YEAR. IT WAS SU BMITTED BY THE AR OF THE ASSESSEE BEFORE THE ASSESSING OFFICER THA T THE BORROWED FUNDS WERE NOT UTILIZED FOR MAKING INVESTMENTS. THE ASSES SING OFFICER HAS OBSERVED THAT THE FUNDS OF THE COMPANY CAME IN A CO MMON KITTY AND THEY ARE USED BOTH FOR BUSINESS PURPOSE AND INVESTMENTS. THEREFORE, SHE DISALLOWED PROPORTIONATELY ` .20,59,893/-. I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.1 11 13 33 31 11 14 44 4/M/ /M/ /M/ /M/13 1313 13 4 10. ON APPEAL, THE LD. CIT(APPEALS) BY CONSIDERING THE SUBMISSIONS OF THE ASSESSEES COUNSEL, ALLOWED THE GROUND RAISED BY TH E ASSESSEE AND DIRECTED THE ASSESSING OFFICER TO DELETE THE ADDITION MADE I N RESPECT OF THE INTEREST. 11. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 12. THE LD. DR HAS POINTED OUT THAT THE ASSESSEE H AS NOT ABLE TO ESTABLISH THAT THE SURPLUS FUND/RESERVES WERE USED FOR THE PU RPOSE OF INVESTMENTS. THE LD. CIT(APPEALS), WITHOUT CONSIDERING THE ENTIR E FACTS, SIMPLY ALLOWED THE CLAIM OF THE ASSESSEE. 13. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASS ESSEE HAS SUBMITTED THAT THIS MATER MAY BE REMITTED BACK TO THE ASSESSI NG OFFICER AND THE LD. DR HAS FAIRLY ACCEPTED THE SUBMISSIONS OF THE LD. COUN SEL FOR THE ASSESSEE. 14. WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIAL S ON RECORD AND ORDERS OF AUTHORITIES BELOW. THE ISSUE BEFORE US FO R CONSIDERATION IS WHETHER THE ASSESSEE HAS UTILIZED THE BORROWED FUNDS FOR MA KING INVESTMENTS OR NOT. THE CASE OF THE ASSESSEE IS THAT THE ASSESSEE HAS N OT UTILIZED BORROWED FUNDS FOR MAKING INVESTMENTS AND UTILIZED ONLY RESE RVE/SURPLUS FUNDS. BUT, ACCORDING TO THE ASSESSING OFFICER, IT APPEARS THAT BORROWED FUNDS WERE ALSO USED FOR THE PURPOSE OF INVESTMENTS. HOWEVER, THE A SSESSING OFFICER HAS STATED THAT THE FUNDS OF THE COMPANY CAME IN A COMM ON KITTY AND ARE USED BOTH FOR BUSINESS PURPOSES AND INVESTMENTS WITHOUT DETERMINING THE EXPENSES DIRECTLY ATTRIBUTABLE TO EARNING EXEMPT IN COME. THESE FACTS ARE NOT I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.1 11 13 33 31 11 14 44 4/M/ /M/ /M/ /M/13 1313 13 5 CLEAR FROM THE RECORD AND SIMILARLY, THE ASSESSEE H AS NOT BEEN ABLE TO ESTABLISH EITHER BEFORE THE ASSESSING OFFICER OR BE FORE THE LD. CIT(APPEALS) OR EVEN BEFORE US THAT THE ASSESSEE HAS NOT UTILIZE D BORROWED FUNDS FOR THE PURPOSE OF MAKING INVESTMENTS. THEREFORE, WE SET AS IDE THE ORDER PASSED BY THE LD. CIT(APPEALS) AND FOR THIS LIMITED PURPOSE T HE MATTER IS REMITTED TO THE ASSESSING OFFICER WITH A DIRECTION TO PASS A SPEAKI NG ORDER AFTER EXAMINING THE ISSUE AT LENGTH AND DECIDE THE ISSUE AFRESH IN ACCORDANCE WITH LAW AFTER ALLOWING SUFFICIENT OPPORTUNITY OF HEARING TO THE A SSESSEE. 15. IN THE RESULT, THE APPEAL OF THE REVENUE IS PA RTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT AT THE TIME OF H EARING ON WEDNESDAY, THE 11 TH OF SEPTEMBER, 2013 AT CHENNAI. SD/ - SD/ - (DR. O.K. NARAYANAN) VICE-PRESIDENT (V. DURGA RAO) JUDICIAL MEMBER CHENNAI, DATED, THE 11.09.2013 VM/- TO: THE ASSESSEE/A.O./CIT(A)/CIT/D.R.